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There’s now more funding for innovation than ever before.

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Erika van der Merwe, CEO of the South African Venture Capital & Private Equity Association (SAVCA), says South Africa’s young yet lively venture capital ecosystem is building momentum, with the increased availability of funding mechanisms for innovation being one important driver of this growth.

 

Successful venture capital-backed businesses rely on far more than funding, other essential components being:

  • Mentorship of entrepreneurs
  • Access to networks and markets
  • An enabling business and regulatory environment.

“Typically, though, entrepreneurs perceive access to funding as the major stumbling block to the bringing-to-market of their start-up businesses or ideas,” says Van der Merwe.

“Successful models of innovation funding adopted elsewhere in the world entail meaningful support from government, ranging from direct funding to the creation of a supportive environment through sensible incentives that stimulate investment.”

State funding for tech

South Africa gradually is establishing the foundation in this regard, with state funding for research and early-stage ventures available through various structures.

An important role-player is the state-funded Technology Innovation Agency (TIA), established to bring very early-stage ventures towards the point of viability and scalability. TIA last year announced that it would make R300m available for early-stage investment.

The Industrial Development Corporation (IDC), another self-funded state-owned entity, also plays a pivotal role in financing innovation. Its venture capital fund is mandated to enable the conversion of technology-rich South African intellectual property into a market-ready product, and ultimately its commercialisation.

The Department of Trade and Industry (DTI) offers funding support for start-ups through a wide range of mechanisms, including the SPII programme, an initiative which the IDC administers on behalf of the DTI.

The DTI recently launched a dedicated website to make the selection and application for the various initiatives much simpler for entrepreneurs – a positive step in an environment mired in red tape.

Private sector funding

Van der Merwe points out, “Compared to government initiatives, private-sector funding for innovation in South Africa is less concentrated and fairly diverse in form, and has grown substantially in recent years.

“Institutional investment into venture capital funds by private-sector institutions is rare: Pension funds, life insurers and banks, for example, are focused instead on funding more established technologies and businesses, usually through listed assets or private equity.”

 Venture capital

Venture capital funds rely on investment from corporates, government, development finance institutions and family offices. “The number of South African funds, as well as the value and volume of transactions, is increasing, says Van der Merwe.

“There is also substantial interest from offshore investors and funds for active participation in the local venture capital industry. Current legislation weighs on this process, though.”

Angel investors

There has also been the establishment of angel networks, as angel investors are a critical part of the funding ecosystem and work closely with venture capital funds. Angel investors are wealthy individuals who usually are entrepreneurs in their own right, with an understanding of venturing and a passion for giving back to the start-up community.

Their backing may come in the form of allocations into a venture capital fund, in which case they do not play a role in the selection of the underlying technologies and entrepreneurs.

Angel funding in other instances is channelled directly to the entrepreneur, through regular pitching sessions held by dozens of incubators and accelerators across the country, or through the angels’ own networks.

SARS supports innovation investment

An amendment in recent years to the South African Income Tax Act has created a welcome inducement for individuals, trusts and companies to invest into innovation.

Section 12J of the Act offers tax relief for allocations into qualifying and registered venture capital funds, and represents an important first step towards building a sensible and beneficial incentive structure for private sector venture funding.

Corporate investment

Van der Merwe says, “Corporate investing into innovation is a further exciting trend in South Africa. Where large firms in years gone by had budgets for research and development that was overseen by in-house scientists, the move now is for companies to insource innovation by buying start-ups. In some cases these larger companies are seeing the benefits of offering the innovators early-stage business support services to increase the likely success of the commercialisation of the innovations.”

Innovation takes time and by its nature is prone to uncertainty and risk. Boosting innovative activity in South Africa will require decisive implementation of wide-ranging support measures for creative thinking, business development, deepening of market networks and increased international collaboration.

Carefully crafted funding options that embody the deployment of patient risk capital by both the public and private sector are one part of this solution.

 

 

 

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Silver Linings For Smaller Businesses In Budget 2018

Comments by Pieter Bensch, Executive Vice President, Africa & Middle East at Sage.

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As expected, the Finance Minister and Treasury have proposed some tough measures to address South Africa’s tax collection shortfall, growing budget deficit, and new spending priorities such as free education. Higher VAT, fuel levies and import duties on luxury goods will no doubt crimp consumer spending, which could be bad news for smaller businesses.

But we are pleased that the Finance Minister has raised his GDP growth projections and proposed interventions to help grow Small & Medium South African businesses. We welcome the steps government is taking to restore fiscal credibility, rein in spending, and hold off another credit ratings downgrade – it may be painful in the short term, but we should be rewarded in the longer term.

On small businesses, competition policy and market access

It was great to see the Finance Minister talk extensively about the hopes and concerns of entrepreneurs and small businesses in his Budget Speech today. We welcome his acknowledgement that low market access and high barriers to entry are constraining the growth of the country’s small businesses.

Minister Gigaba mentioned that government will take action against anti-competitive behaviour that harms these businesses.

That is a worthy goal, but we think we should also be looking more closely at how big businesses can play a constructive role in nurturing the growth of small businesses through mentoring and partnership. Small businesses are tomorrow’s customers, suppliers and employers, so it’s in everyone’s interest to grow this sector.

Related: How South African Small Business Owners Can Overcome Economic Uncertainty

On small business funding

We heard more about the R2.1 billion fund Departments of Small Businesses and Science & Technology and the National Treasury are developing to benefit small and medium enterprises during the early start-up phase. It’s good news that government is investing in innovative startups, but it’s important that the funding is spent in an efficient and productive manner. Picking winners and losers isn’t easy, so we’d like to hear more details about how government will choose to allocate this money.

On public procurement

It makes enormous sense for government to use public procurement to support black economic empowerment, industrialisation and development of small businesses. We are glad to hear that government sees its billions of rand in procurement spend as a lever to empower small business owners – we look forward to more detail about how government will enable more small and micro businesses to participate in procurement opportunities. And of course, it’s critically important that government follows through on its promise to pay small businesses within 30 days of invoicing.

Cash flow is a major challenge for small businesses and few of them can afford to wait three to six months for payment on a big project.

Related: How South Africa’s Small Businesses Plan To Invest Their Money In 2018

VAT

Most consumers and businesses have been preparing themselves for a VAT increase in this budget. As unpalatable as many people will find the one-percentage point hike in the VAT rate, it was an obvious choice for a Finance Minister wanting to raise more revenue without dampening business investment or consumer spending.

The VAT hike will take some money out of people’s pockets, but will probably have less impact on business confidence than higher corporate taxes and less impact on consumer spending than further personal tax increases.

As expected, government has preserved the zero-rated status of some staples to lessen the impact on the poor. Small & Medium Businesses will need to make sure their systems are ready to cater for the new VAT rate, but this should not be too much of a challenge for those with automated accounting systems. By international standards, VAT in South Africa is still relatively low – we can just hope that this increase is not followed by another in the next year or two.

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4 Budget Speech 2018 Outcomes To Know For Your Business

2018 Budget Speech commentary by Rob Cooper, tax expert and Director of Legislation at Sage.

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The increases to taxes across the board are less painful than I expected. The general improvement to the fiscal framework and the reduction of expenditure by R86 billion over three years seem to have gotten us over the hump – for now, in any case.

1. Personal income tax

There were no surprises as far as personal income tax (PIT) is concerned. The top 45% rate remains unchanged and tax bracket creep relief is given only to those who earn below R410 000 per annum. Bracket creep in personal income tax, along with fuel levies, offers low-hanging fruit for the Finance Minister.

Related: What It Will Really Take For South Africa’s Businesses To Scale And Create Jobs

National Health Insurance

It’s good news that the Medical Tax Credit is still with us, even if it has received a below-inflation increase. This Medical Tax Credit is relatively small – especially with this year’s low increase – but it does help to make private medical cover affordable for millions of low-income South Africans.

2. Travel reimbursements

Great news for taxpayers and employers from the Budget: Government has scrapped the 12,000km a year limitation for using the prescribed rate per kilometre to calculate travel reimbursements.  This will simplify travel reimbursement administration, but could open the door for increased levels of non-compliance in respect of travel reimbursements. On the whole, however, this will make life much easier for businesses.

Related: Silver Linings For Smaller Businesses In Budget 2018

3. Employment tax incentive

The Minister of Finance has decided that six special economic zones (SEZs) should be recognised by the ETI Act. Employers will thus be able to claim the Employment Tax Incentive for all employees working in one of these SEZs, irrespective of an employee’s age, but subject to qualification tests such as minimum wage and maximum remuneration. Outside of the SEZ, employers can only claim for the incentive for employees aged 18 to 29 years. This is a great way to generate more employment in the SEZs.

4. VAT

The VAT increase was expected and inevitable, and so were the VAT exemptions and increases to social grants the Finance Minister has applied to shield the poor from the impact of higher VAT.

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Tsogo Sun Entrepreneurs Takes On 30 New Businesses

22 Women and 20 men – attended a three-day induction at Tsogo Sun’s Crowne Plaza The Rosebank hotel in Johannesburg from 31 January to 2 February.

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With new hope burgeoning throughout the South African business environment as fundamental political change sweeps through the country, the Tsogo Sun Entrepreneurs programme has inducted 42 new beneficiaries from 30 different SMMEs for a year of intense training, coaching, mentorship and support – to assist them to professionalise and grow their businesses. This brings to 242 the total number of entrepreneurs supported by the programme.

The inductees – 22 women and 20 men – attended a three-day induction at Tsogo Sun’s Crowne Plaza The Rosebank hotel  in Johannesburg from 31 January to 2 February. This represented the commencement of the programme’s 2018 development year, which incorporates the provision of customised analysis and strategic plans tailored to the specific needs of each enrolled business, business management courses provided by the University of Cape Town and facilitated by GetSmarter; Financial literacy courses through the Colour Accounting system, Microsoft Office courses, and Sales & Marketing training.  The beneficiaries are each assigned a business analyst, a financial mentor and a leadership coach who work with them to implement their business strategies throughout the year.

Related: Before Time In Soweto – The Décor Hire And Catering Entrepreneurs That Are Growing Their Business Annually

This year’s class of 2018 entrepreneurs is made up of 30 small businesses operating in provinces across six provinces in South Africa in a diverse range of market sectors that include: tourism, ICT, cleaning, professional services, manufacturing, retail, health and beauty, agriculture and secretarial and administrative services. Candy Tothill, Tsogo Sun’s GM of Corporate Affairs, says “Part of the value of such a diverse group is that it creates opportunities for the businesses to trade with each other.”

She adds, “Job creation is increasingly crucial in South Africa, as unemployment has reached unprecedented levels, particularly among the youth. Through the Tsogo Sun Entrepreneurs programme, we identify and assist people running their own businesses to professionalise their operations in an effort to make them viable employers who are sustainable businesses and contributors to the growth of the country’s economy.  At the same time, we encourage them to be “conscious” consumers who procure local products and services and support each other by keeping it local and proudly South African.  We are interested in changing their approaches from “managerial” mindsets to “leadership” mindsets, and so we motivate them to be fearless in their approach to growth with purpose. The programme provides them with the skills to enhance their strategic planning and performance and the wisdom to “pay it forward” by training them to become leaders in their communities.  The role that the programme’s mentors and coaches play in instilling these values is of great significance to the achievement of our objectives.”

Belinda Francis, MD of Tych Solutions, a generalist recruitment agency based in Durban with offices in Johannesburg and Eastern Cape, was enthusiastic about joining the Tsogo Sun Entrepreneurs programme. “Tsogo Sun is an amazing brand to be associated with, but more so, having met the team at a Supplier Showcase and heard others’ success stories, I was hungry to learn more and be a part of this journey. I don’t have an active partner and so I believe this programme will help to grow and empower me and my entire team even further. I am big on empowering and developing people and small businesses – and this will certainly create the platform for me to do so.”

Related: Gemkids – From Montessori Method To Micro Enterprise

Entrepreneur Carol Mlangeni, director of Enhle Creatives Photography & Design, also based in Durban, says she was browsing the internet looking for guidance on how to resolve issues within her company when she saw a Tsogo Sun Entrepreneurs advertisement – and immediately responded. “I have issues within my business and I have been looking for answers on how to resolve them and grow my business and my brand awareness – I hope to achieve this through this programme.” Mlangeni adds that her future plans include providing job opportunities for “other aspiring enthusiasts like me”.

Thato Senosi is Founder of Magauta Designs and Projects, which supplies custom-made curtains, upholstery, and furniture repairs, and is based in Katlehong in Ekurhuleni. He was introduced to Tsogo Sun Entrepreneurs by his mother, Carol Senosi, who joined the programme in 2016 and was a finalist in the Entrepreneur of the Year Awards. He says he joined the programme because

“I believe that entrepreneurship is a science, and one needs to put together all the necessary tools and formulas to build a successful business – and this programme offers that. My expectations this year are to identify missing formulas and find solutions, to be monitored and supported, and helped to become a great version of myself so I can inspire others, because no man is an island.”

His plans for the future include starting his own textile manufacturing company and bringing industry into the township to help combat some of the social challenges in his local community.

Says Tothill, “It’s encouraging to see the growing reach of Tsogo Sun Entrepreneurs throughout the country and in a diverse range of businesses, and we wish our new beneficiaries – the Class of 2018 – every success through the year as they discover new ways to develop themselves and their enterprises.”

Tsogo Sun has a portfolio of over 100 hotels and 13 casino and entertainment destinations throughout South Africa, Africa and the Seychelles. For more details, visit https://www.tsogosun.com, follow on Twitter @TsogoSun or like on Facebook /TsogoSun.

Visit the Tsogo Sun Entrepreneurs on Facebook: Facebook/TsogoEntrepreneurs and follow #TsogoEntrepreneurs on Twitter and Instagram.

Tsogo Sun Entrepreneurs Class of 2018 with Hezron Louw

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